The average person’s retirement fund does not contain millions of dollars. In August 2022, GOBankingRates surveyed 997 Americans on the topic of retirement. When asked how much they currently had saved for retirement, nearly 36% respondents said they had less than $10,000. Almost 27% of respondents said they have between $10,000 to $50,000 in retirement savings, but only 3% of respondents polled have more than $750,000 saved for retirement.
While the current economic landscape is marked by a high cost of living and inflation, it’s still incredibly important to save for retirement purposes. Keep yourself from the risk of falling behind on your retirement goals by utilizing these retirement savings tips.
Open a 401(k)
If you work for an employer who offers a 401(k) plan, take advantage of the opportunity to open this account and contribute to it. Many employers will match your contributions.
Those over age 60 may also make annual catch-up contributions to this account. In 2022, the IRS said the annual catch-up provision is an additional $6,500 to an individual’s 401(k).
Open a Traditional or Roth IRA
Individuals who do not have access to a 401(k) program provided by their employer may open an individual retirement account (IRA) in their own name. You can open a traditional IRA or a Roth IRA as part of your retirement savings.
Traditional IRAs are tax-deferred, meaning you may be eligible for a tax deduction each year you contribute. Earnings in a traditional IRA grow tax-deferred, but are subject to ordinary income taxes when you make a withdrawal. A Roth IRA has a maximum limit for contributions to the account each year. In 2022, the maximum contribution is $6,000 under age 50 and $7,000 over age 50. You will not receive a tax deduction when contributing to a Roth IRA account, but you are subject to a 10% penalty if you withdraw earnings before age 59½.
Establish a Diversified Investment Portfolio
Nearly 52% of respondents polled by GOBankingRates said their retirement assets included a 401(k) plan and an IRA. Respondents also counted stocks (39%), bonds (20%) and cryptocurrency (20%) among the assets in their retirement portfolios.
Ideally, those saving toward retirement should diversify their portfolios. Additional funds to invest in may include stocks, bonds, commodities and alternatives. The more you are able to diversify your portfolio, the more you’ll be able to yield returns in pace with or exceeding inflation and economic growth. Some portfolio assets, like bonds, may protect cash which may not be afforded the most inflation protection.
Delay Retirement and Work Longer
If you know you’re not prepared to retire or need extra time to get financially caught up, consider delaying retirement. Working longer, although it may not sound appealing, provides many benefits to those reconsidering their retirement timing.
Typically, the highest earning years in one’s career are in their 50s and 60s. Waiting until age 70 to retire, instead of retiring as early as 62, means putting eight additional years of earnings toward retirement. This can build up your savings to better support your lifestyle in your retirement years while decreasing the years you might have been spending this money.
Those who wait until age 70 to claim Social Security benefits will also receive the highest possible payout. Remember, Social Security is based on your 35 highest years of earnings. Working longer, especially if you have a high-paying salary, will allow you to replace any lower earning years with higher earning years.
